Overview of the Paint and Coating industry in Vietnam

2018.10.29

The fast-developing economy in Vietnam is a key driver of the paint and coating industry in the country. The purchasing power of the Vietnamese population continues to expand with rising income levels. Consumer spending in the retail industry is stimulating demand for various kinds of goods and services that have direct or indirect linkages with the paint and coating industry. Construction and housing sectors, for example, are the primary buyers of paints and coatings, especially decorative coatings. Growing domestic demand and export surplus in the furniture industry also support the growth of the paint and coating industry. Public infrastructure and shipbuilding are other sectors experiencing significant growth with the former securing loans and grants from international institutions such as the World Bank, Asian Development Bank, and foreign governments, and the latter gaining support from the government and foreign investors.

Decorative Paint and Coating market

According to Vietnam‟s General Statistics Office, revenue for the country‟s construction sector grew by approximately 8.8% to reach approximately VND456.0 trillion in the first six months of 2016 as compared to the same period in 2015.The construction industry in Vietnam, especially in Ho Chi Minh City, is currently undergoing development of large scale projects such as the Vinhome Central Park, consisting of approximately 10,000 apartments - one of the largest projects by Vietnam based Vin Group. Other large residential housing projects in Ho Chi Minh City include a VND355.0 billion residential project in Nha Be Districts, a social housing project worth VND1.1 trillion in District 12, a housing and commercial complex project worth VND1.7 trillion and an apartment complex project worth VND869.0 billion in Phu Nhuan District and a low-rise housing project worth VND531.0 billion in District 9. Most of these projects are expected to be completed by 2018. Many low-cost apartment projects are also under development in Ho Chi Minh City, with approximately 300 such apartments sold in District 9 in 2016 and another 1,000 up for sale in 2017. In 2016, in Ho Chi Minh City, approximately 31.0% of all apartments were categorized as high-end, 49.0% as medium-cost and rest 20.0% as low-cost. Foreign developers such as Maeda Corporation and Kajima Corporation (Japan), Mirae Asset Securities Co. and Lotte Real Estate Co., Ltd. (South Korea), Frasers Centrepoint Ltd and Mapletree Investments Pte Ltd (Singapore), among others are also driving the growth in construction activities to tap into the rising income levels in the country, which has in turn led to greater demand for better quality homes and commercial buildings. New housing laws introduced by the government aimed at reducing restrictions on foreign ownership of residential and commercial buildings are also spurring development activity. The potentially increasing expat home ownership and demand for better quality homes are likely to further the demand for expensive apartments with plush interiors. This is likely to result in a demand for premium paints and coatings in the forecast period.

Non-Decorative Paint and Coating market

Demand for non-decorative paints and coatings are likely to be driven by a number of factors. Firstly, the need for industrial space is growing as well with an increase in industrial parks, warehouses, and logistics facilities. Infrastructure is another area gaining momentum with investments in the energy and utilities and transport sectors, mainly focusing on improvements in roads, railways, and ports. The government of Vietnam has also entered into several PPPs with the goal of creating a less protectionist environment to attract more FDI into the country. From 2010 to 2020, a total investment of approximately USD200.0 billion is expected to be channeled toward infrastructure development in Vietnam presenting lucrative opportunities in the country‟s paint and coating industry.

A second source of demand comes from Vietnam‟s furniture sector, which comprises more than 2,500 domestic manufacturers and over 400 foreign enterprises. The country‟s wooden furniture exports earned more than USD1,550.7 million in 2014, ranking 6th in the world and 1st in SEA for wooden furniture exports. Major destinations for Vietnamese wood furniture exports in 2015 included the US (58.1% of total wooden furniture exports), Japan (12.9%), UK (6.4%), China (5.1%) and South Korea (3.6%). Leading furniture retail dealers such as IKEA and SB Furniture also have a significant presence in the country.

Third, rapid infrastructural development in the country such as construction of roads, highways, bridges and the MRT are expected to boost project sales of non-decorative paints and coatings.

Value Chain and Distribution Chain Analysis

Similar to the paint and coating industry in Thailand, raw materials for Vietnam‟s paint and coating industry are sourced domestically as well as through imports (eg, silica). Raw materials (resins) used by the paint and coating manufacturers in Vietnam are produced mostly by resin and other chemical manufactures, which are predominantly MNCs such as the Dow Chemical Co., and BASF.

The distribution and supply chain for non-decorative paints and coatings in Vietnam is mostly inclined towards direct sales from paint and coating manufacturers to industries and infrastructure development contractors. However, for many of the non-decorative paint and coating categories, especially waterproofings and wood coatings, retail sales constitues a sizeable portion. Furniture industries and small scale industries are also some of the large customers for non decorative paints annd coatings. Large furniture manufacturers procure directly from the paint producers to gain competitive prices while smaller ones purchase through retail channels. Smaller infrastructure contractors and sub contractors also use the retail channel. Real-estate developers and construction contractors buy most of their decorative paint and coating requirements from large retail dealers. Construction contractors are some of the biggest consumers of decorative paints and coatings in the country. In Vietnam, the construction industry is fragmented with contractor companies (roughly 40,000-60,000) of varying sizes.

Individual end users can purchase paints and coatings via retail, however, there are intermediaries in this channel. Due to the low labor costs for painting – USD10.0-USD15.0 per square meter in suburban areas and USD20.0-USD25.0 per square meter in city centers – end users prefer to employ painters, architects, and small contractors to manage the entire process of paint procurement to application. As the third-parties typically decide on paint and coating purchases, they can be considered as a major customer base for retail dealers. The absence of a DIY trend in the country is reflected from the low retail to individual sales across all categories of paints and coatings in Vietnam.

Market Sizing and Forecasts

Retail sales for decorative paints and coatings, which is approximately 50.0%-60.0% of total decorative paint and coating sales in Vietnam, are mainly driven by the construction and furniture industries alongside demand from public infrastructure developments. Among these, the construction industry is one of the primary consumers of decorative paints and coatings sold through retail channels.

The retail decorative paint and coating market grew at a CAGR of 9.0% between 2011 and 2016, growing from VND4,224.8 billion in 2011 to VND6,500.0 billion in 2016. The rapid growth over the years is likely to beattributed to heightened activity in the housing market as well as an improvement in overall economic conditions in the country. The retail market for decorative paints and coatings in Vietnam is forecast to record an even higher CAGR of approximately 9.9% over the forecast period of 2016 to 2021, growing from approximately VND 6,500.0 billion in 2016 to approximately VND10,421.0 billion by 2021 as positive macroeconomic conditions continue to drive construction activity in the country.

Wood coatings, among all the other categories of non-decorative paints and coatings had the highest sales through the retail channel (approximately 15.0%-20.0% of total wood coatings sales). Waterproofing also has a considerable portion (approximately 10.0%-20.0%) of sales through the retail channel. The major customers of waterproofing in retail sales channel are small time painters and contractors. Between 2011 and 2016, the retail non-decorative wood coatings market registered a CAGR of approximately 5.3%, growing from approximately VND691.3 billion in 2011 to approximately VND894.8 billion in 2016. The retail non-decorative waterproofing market posted a higher CAGR of 6.7%, growing from VND565.9 billion in 2011 to VND782.9 billion in 2016. Higher growth rates observed in the retail non-decorative waterproofing market as compared to the retail non-decorative wood coatings market can be attributed to increase in housing construction activities during 2011-2016.

A distinct feature of the non-decorative protective coatings industry in Vietnam is the very limited presence of retail dealers. Almost 95.0% of sales in the non-decorative protective coatings industry are project sales through channel partners who are not retail dealers and are considered as an extended arm of the paint and coating manufacturer. Significant product know-how and in-depth knowledge of specific end-user requirements are critical in this segment which a majority of retail dealers are currently lacking. The market had very negligible growth rate historically as paint and coating manufacturers had focused only on this channel to sell protective coatings products to the project owners. As such, the retail non-decorative protective coatings market recorded a CAGR of approximately 2.2 %, growing from approximately VND110.2 billion in 2011 to approximately VND123.0 billion in 2016.

Frost & Sullivan expects the retail non-decorative wood coatings market in Vietnam to expand at a higher (as compared to the historical period 2011-2016) CAGR of approximately 6.9%, from approximately VND894.8 billion in 2016 to approximately VND1,250.1 billion in 2021. The growth is likely to be driven by increased wood furniture manufacturing activities as well as its domestic consumption. The retail waterproofing market is expected to record a higher CAGR of approximately 7.5%, as compared to the historical period 2011-2016, growing from approximately VND782.9 billion in 2016 to approximately VND1,123.7 billion by 2021. The higher growth rate in this market could be attributed to the increasing housing constructions and developments in the urban centers of the country, most of which are expected to get completed by 2019. Going forward, in the forecast period, the retail nondecorative protective coatings market is expected to register a CAGR of approximately 8.4%, growing from approximately VND123.0 billion in 2016 to approximately VND184.4 billion by 2021 mainly driven by increased focus on expanding retail dealer reach by educating them about technicalities and product-features.

Competitive Landscape Analysis

The retail participant dominating the decorative paint and coating market in Vietnam is 4 Oranges Co Ltd, a Vietnamese paint and coating manufacturer. Other major paint and coating manufacturers in the Vietnamese market are mostly subsidiaries of multinational companies such as Akzo Nobel (Netherlands), Nippon Group (Japan), Jotun Group (Norway) and TOA Paint (Thailand) Group. Some of these companies initially focused on importing paints and coatings to Vietnam, however, most have their production facilities in the country today (2017). There is a lack of large domestic paint and coating manufacturers in Vietnam. Several smaller domestic decorative paint and coating manufacturers in the country include Hempel Vietnam Co Ltd, Vietnam Shyange Paint Co Ltd, and Hai Phong Paint Company, mostly specializing in non-decorative paints and coatings.

The retail non-decorative wood coating market in Vietnam has two large domestic companies namely OSeven Corporation and Adora Paints Vietnam Co., Ltd (Adora Paints). Kova Group Ltd (Kova) is one of the largest domestic participants in the retail non-decorative waterproofing market. However, there are no larger domestic paint and coating manufacturers in the retail non-decorative protective coatings market. Local subsidiaries of Jotun Group (Japan) and Akzo Nobel (Netherlands) dominate this segment. The Vietnamese subsidiary of Akzo Nobel, International Paint Singapore Pte Ltd, has a significant presence in all three retail non-decorative paint and coating markets (wood coating, waterproofing, and protective coating), while Jotun Paints (Vietnam) Co Ltd is a key market participant in the retail non-decorative protective coating and waterproofing markets. Sika Ltd (Vietnam), a subsidiary of Sika Group (Switzerland) is a major market participant in the retail non-decorative waterproofing market. Smaller domestic non-decorative paint and coating manufacturers include Dong Tam Co Ltd and Tison Paint Co Ltd.

Market Share Estimates and Profiles of Retail Decorative and Non-Decorative Paint and Coating companies in Vietnam

In 2016, the retail market for decorative paints and coatings in Vietnam was mainly dominated by 4 Oranges Co Ltd (4 Oranges) and International Paint Singapore Pte Ltd (Akzo Nobel) with a combined share of approximately 41.0%, The former held a market share of approximately 23.0% while the latter had approximately 18.0% share in the retail market for decorative paints and coatings. TOA Paint (Vietnam) Co., Ltd with approximately 9.8% market share was closely followed by Nippon Paint (Vietnam) Ltd (Nippon Paint), a subsidiary of Japan-based Nippon Group at approximately 9.0%. Jotun Paints (Vietnam) Co., Ltd (Jotun Paint) was also among the top five decorative paint and coating manufacturers for the retail market with a share of approximately 8.0% in 2016.

Oseven Corporation, a Vietnam-based paint and coating manufacturer, had the highest share of approximately 45.0% followed by Adora Paints (Vietnam) Co., Ltd (Adora Paints) with approximately 15.0%. Other large players in the retail market for non-decorative wood coatings in Vietnam in 2016 were International Paint Singapore Pte Ltd (Vietnam branch) with a retail market share of approximately 10.0%, and TOA Paint (Vietnam) Co., Ltd with approximately 8.0% share of the total wood coatings market.

The retail market for non-decorative waterproofing in Vietnam, in 2016, was largely dominated by Kova Group Ltd with an approximately 49.0% market share. International Paint Singapore Pte Ltd (Vietnam Branch), Jotun Paints (Vietnam) Co., Ltd at 10.0% market shares each and TOA Paints (Vietnam) Co., Ltd with approximately 6.0% was the other participants in this segment in 2016.

The retail market for non-decorative protective coatings in Vietnam, in 2016, was jointly dominated by Jotun Paints (Vietnam) Co., Ltd with approximately 50.0% market share and International Paint Singapore Pte Ltd (Vietnam branch) or Akzo Nobel (Vietnam) with an approximate share of 40.0%. Hai Phong Paint Joint Stock Company was also a market participant with a negligible share of approximately 5.0% of this market in 2016.

Industry Prospects & Outlook

Vietnam has been on a growth trajectory since 2011 and is expected to continue the momentum in the forecast period, mainly driven by stimulus from the government‟s long term growth strategies. The rapid growth of the country‟s economy, coupled with the young and large population is also likely to be a key growth driver in the forecast period.

Growth in the retail paints and coatings post 2017 is likely to be driven by large housing construction projects in urban areas of Vietnam. Increase in the number of foreign developers in this sector and rising income levels of the population are gradually increasing demand for better quality housing. This in turn is expected to boost the sales of decorative paints and coatings and shift consumer preferences towards premium category products.

Demand for non-decorative paints and coatings is also expected to increase as a result of increased FDI inflow into the country. Growth in Vietnam‟s furniture industry is likely to drive growth in the retail market for non-decorative wood coatings, while increased public investments towards infrastructure projects related to transport is expected to lead the growth in the retail market for non-decorative waterproofing. The retail market for non-decorative protective coatings is relatively less prominent in Vietnam. However, it is expected to grow at much higher rates in the forecast period as a result of foreign and domestic players increasing their retail distribution networks. Digitization is set to stimulate growth in this industry as the country‟s young demographic increasingly leverages technology to make purchase decisions including choosing the paint texture and special effects for their house interiors. Growing awareness among customers about the origins of products, safety of ingredients, and their environmental friendliness is also likely to influence the paint and coating industry in Vietnam. Companies that are able to cater to the evolving tastes and preferences of retail and B2B consumers are likely to reap significant benefits in the forecast period.

Source: Frost & Sullivan, Independent Research on the Paint and Coating Industry in Southeast Asian Country